Liberal economists argue that the “debunking” of RR proves that debt doesn’t matter, and that conservative economists who say it does are liars and scoundrels.

Conservative economists argue that the Habsburg, British and French empires crumbled under the weight of high debt, and that many other economists – including Niall Ferguson, the IMF and others – agree that high debt destroys economies.

Researchers at the Bank of International Settlements and the International Monetary Fund have weighed in with their own independent work. The World Economic Outlook published last October by the International Monetary Fund devoted an entire chapter to debt and growth. The most recent update to that outlook, released in April, states: “Much of the empirical work on debt overhangs seeks to identify the ‘overhang threshold’ beyond which the correlation between debt and growth becomes negative. The results are broadly similar: above a threshold of about 95 percent of G.D.P., a 10 percent increase in the ratio of debt to G.D.P. is identified with a decline in annual growth of about 0.15 to 0.20 percent per year.”

This view generally reflects the state of the art in economic research

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Back in 2010, we were still sorting inconsistencies in Spanish G.D.P. data from the 1960s from three different sources. Our primary source for real G.D.P. growth was the work of the economic historian Angus Madison. But we also checked his data and, where inconsistencies appeared, refrained from using it. Other sources, including the I.M.F. and Spain’s monumental and scholarly historical statistics, had very different numbers. In our 2010 paper, we omitted Spain for the 1960s entirely. Had we included these observations, it would have strengthened our results, since Spain had very low public debt in the 1960s (under 30 percent of G.D.P.), and yet enjoyed very fast average G.D.P. growth (over 6 percent) over that period.

***

We have never advised Mr. Ryan, nor have we worked for President Obama, whose Council of Economic Advisers drew heavily on our work in a chapter of the 2012 Economic Report of the President, recreating and extending the results.

In the campaign, we received great heat from the right for allowing our work to be used by others as a rationalization for the country’s slow recovery from the financial crisis. Now we are being attacked by the left — primarily by those who have a view that the risks of higher public debt should not be part of the policy conversation.

But whether you believe that the errors in the RR study are fatal or minor, there is a bigger picture that everyone is ignoring.

Initially, RR never pushed an austerity-only prescription. As they wrote yesterday:

The only way to break this feedback loop is to have dramatic write-downs of debt.

***

Early on in the financial crisis, in a February 2009 Op-Ed, we concluded that “authorities should be prepared to allow financial institutions to be restructured through accelerated bankruptcy, if necessary placing them under temporary receivership.”

Significant debt restructurings and write-downs have always been at the core of our proposal for the periphery European Union countries, where it seems to us unlikely that a mix of structural reform and austerity will work.

Indeed, stimulus and austerity are not only insufficient on their own … they are actually 2 sides of the same coin.

Specifically, the central banks’ central bank warned in 2008 that bailouts of the big banks would create sovereign debt crises. That is exactly what has happened.

A study of 124 banking crises by the International Monetary Fund found that propping up banks which are only pretending to be solvent often leads to austerity:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

***

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

In other words, the “stimulus” to the banks blows up the budget, “squeezing” public services through austerity.

Instead of throwing trillions at the big banks, we could provide stimulus to Main Street. It would work much better at stimulating the economy.

The big banks went bust, and so did the debtors. But the government chose to save the big banks instead of the little guy, thus allowing the banks to continue to try to wring every penny of debt out of debtors. An analogy might be a huge boxer and a smaller boxer who butt heads and are both rendered unconscious … just lying on the mat. But the referee gives smelling salts to the big guy and doesn’t help the little guy, so the big guy wakes up and pummels the little guy to a pulp.

A jobless recovery requires less workers…. why individuals, businesses, cities, states and entire nations are disappearing into the abyss … it’s called genocide.

HS

Unfortunately, wealth transfers, austerity, TBTF, and the like are merely symptoms of a greater malady. So long as the elite control the government, society will continue to move towards mass enslavement.

This is a faux debate described in the article. It is a sham-debate purposely designed to set everyone up to fail in our consideration of the real debate that is coming.

The real debate, which will come after stimulus has failed (as designed) and austerity is forced upon us, is whether economic growth in the organic sense of a real economic recovery that will occur due to the coming forced economic austerity paradigm, will to equate to any increase in the standard of living, and, whether such an increase in the standard of living -if it is possible- is sustainable.

Concerning that coming debate, while the question is yet to be decided, history seems to portend a continued decline in the standard of living. Bloated human populations only made possible by temporary scientific (and economic) fixes are the problem, not economics or political organization.

The real debate is whether we should be seeking economic growth at all. My opinion is, No. We should avoid economic growth as if it were the plague.

Economic growth should only be taken as evidence of the furtherance of an ongoing degradation of the planet. One Fukushima is enough. One Deepwater Horizon oil spill is enough. The boom-bust paradigm of credit-based economies is no longer a tenable social design.

The great experiment of representative government has failed -miserably-.